Some Business Interests Support EV Supply Chain Restrictions

As automakers lobby for a longer phase-in for requirements regarding North American content in EV batteries and sourcing of critical minerals, some trade groups are saying that stretch goals -- along with government funding in the Inflation Reduction Act -- are what's needed to create a new supply chain outside of China.

Automakers are already committing to establish U.S. electric vehicle battery manufacturing plants, to prepare for the need to have North American batteries to qualify for USMCA benefits. But, recognizing very few advanced battery cells are manufactured in the U.S., Canada or Mexico now, the USMCA rules of origin require only a tariff shift to originate, not a regional content threshold, for the next three years.

Autos Drive America cautioned the legislation shouldn't hinder EV adoption (see 2207280034). The Alliance for Automotive

Innovation, which covers all major automakers in the U.S., said that while moving EV battery operations to the U.S. is happening, it can't happen overnight. "We support (100 percent) Senator [Joe] Manchin’s goal to reduce dependence on foreign nations for minerals and are committed to growing America’s EV supply chain and adding jobs and capacity here," CEO John Bozzella said in an emailed statement. "But a likely result of this bill (as currently constructed) is that a significant number of consumers will not be able to take advantage of this credit in the early years when it is needed the most,” Bozzella said. Manchin is a West Virginia Democrat.

Ben Steinberg, who represents the Better Materials and Technology Coalition, which includes nickel, manganese, lithium, graphite and silicon companies, as well as battery recyclers in either the U.S. or Canada, is pleased with the bill's critical mineral requirements. Under the requirements, 40% of the value of those minerals would need to be domestic or mined or produced in countries such as Chile, Canada, Australia or South Korea for cars sold in 2023; that percentage rises to 80% in 2027. No minerals mined by a Chinese company or processed in China would be allowed for cars sold in 2025, if they want to qualify for $3,750 of the $7,500 tax credit. (The credit would be income-limited, and restricted to cars assembled in North America). The minerals sourcing requirement is tied to the existence of a free trade agreement, so it doesn't cover mineral processors in Brazil, Argentina or Finland.

"We need to be focused very quickly and aggressively on making those partnerships, and securing the minerals and also developing those resources here at home; but while we’re developing those resources, we should be working with Chile," Steinberg said in a telephone interview Aug. 4. "Who’s to say we wouldn’t sign an FTA with Argentina or Japan in the meantime?"

Steinberg noted the supply chain now mines minerals all over the world, then sends them to China to be processed and then sold to companies involved in what he called "the electrification economy."

"We have the opportunity to change that," he added.

While the Better Materials coalition doesn't represent automotive EV battery makers, the other half of the credit relies on North American battery production. Under the bill, no Chinese content would be allowed starting in 2024, and half the value of the battery's components must be made in North America in 2023, rising to 100% in 2029.

Steinberg acknowledged it takes at least 18 months, and up to three years, from buying property to full-scale production for new advanced battery plants. Still, he said, "I think we can meet a lot of the targets in the timelines, and we should be working in concert between the private sector and government to do so."

He said his group lobbied for money in the infrastructure bill for both battery cell plants and recycling facilities, and that the Department of Energy has already received grant applications for the first tranche of the $6 billion it has to distribute. This bill also offers tax credits and grants for manufacturers in the supply chain.

The Zero Emissions Transportation Association is concerned, however, that no vehicles would qualify for the full credit once the China ban comes into play in 2024 for battery components, and also wonders if it's feasible to cut China out of the mineral supply chain by 2025.

ZETA Executive Director Joe Britton said everyone's scrambling to figure out if any EV made in the U.S., Mexico or Canada will have no Chinese battery inputs in 2023. "The thing people are thinking through is: How quickly can I become compliant?" he said. So Britton said his members are advocating for some additional time before the China ban. "Even 12 to 18 months before some of these stringent requirements come into place" could make the difference between many vehicles not being able to qualify and far more being eligible for the credit, he believes.

"There’s a lot in the mix on the bill," the former Senate staffer said in a phone interview Aug. 4. "I don’t have a good gauge on the likelihood of changes." He said the date changes ZETA is seeking are modest, and he thinks cutting China out in 2024 or 2025 still would incentivize domestic manufacturing of batteries and their components and incentivize mineral processing outside China.

Manchin sounded unmoved when asked by Reuters about the lobbying to change the supply chain requirements. "Tell [automakers] to get aggressive and make sure that we’re extracting in North America, we’re processing in North America and we put a line on China. I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”

Still, Britton said, even if the Inflation Reduction Act passes unchanged, it's an improvement from the status quo, where Tesla cars and General Motors EVs are already ineligible for a credit because of the current credit's sales volume cap. He said Ford and Toyota are also close to reaching that cap. So, even if a company's cars qualify for the credits for only nine years of the 10-year window, that's still a better position than these automakers are in now, he said.

Steinberg predicted that the supply chain timelines will not change. "The question is about other things -- like Sen. [Kyrsten] Sinema [D-Ariz.], and if they can strike an agreement, whether the Senate parliamentarian will rule that these are in the line of the Byrd rules, and whether the House liberal caucus will agree to all the provisions in the bill," Steinberg said. "Those are kind of the main 'ifs."